Dead Being Billed for Life Insurance

Life insurance for the dead? In a plot that might have been conceived by Fred MacMurray and George A. Romero, the nation's leading insurance companies continued billing customers for life insurance long after they were dead.

The companies--including such household names as AIG, Hartford, John Hancock, Met Life, Prudential, Transamerica and TIAA-CREF-- have agreed to a multi-state settlement under which they will repay some $763 million owed the heirs of the deceased.

Prime mover in the settlement has been Controller John Chiang of the State of California, whose citizens stand to get back as much as $87 million from 11 insurers.

California law requires a life insurer to pay death benefits to heirs within three years after the demise of the policyholder.

To keep tabs on which holders are alive and which are dead, insurers keep a so-called Death Master file, based on Social Security data. When a death is recorded in the file, insurers know not to expect payment of any further premiums. Most policies, however, put the onus on the beneficiary to file a claim for benefits, after the policy holder's death. Absent the filing of a claim, says Chiang's office, the insurer, prior to the settlement, could legally continue to draw down the policy's cash reserves, continuing to collect premium payments from the dead.

"Once the cash reserves were depleted," says a statement by Chiang's office, "The company would cancel the policy."

Audits by California found that insurers did not routinely cross-check the owners of dormant accounts with government databases listing the deceased. "In other cases," says Chiang's office, "companies had direct knowledge of the policy owner's death, but still did not notify the beneficiaries."

The 11 companies, as part of their settlement, admit no wrongdoing but have agreed to reform their practices.

"I am pleased that these 11 companies have come forward and agreed to do what is right by their clients," Chiang said in the statement announcing the settlement this week. "Too often, insurers have sidestepped their legal responsibility to make good on insurance policies purchased by their clients to provide peace of mind and financial security to their families."

The American Council of Life Insurers (ACLI), in a related statement, said it was pleased to have reached an agreement with California that "will result in greater numbers of beneficiaries receiving their life insurance benefits, and prompt escheating of funds to the states when heirs cannot be found. It is a positive outcome for all concerned." The vast majority of claims, says ACLI, are paid promptly in the normal course of business.

ABC News asked for further comment from several of the 11 companies but received a response only from ING, whose statement says in part:

"ING U.S. is pleased to have reached an agreement. The resolution is a great example of how the best interests of consumers can be met when the industry and regulators work together an find common ground."

Finding an uncliaimed policy you may be entitled to isn't always easy, but there are some places to start. For people who died more than a few years ago, money may have already been turned over to the unclaimed property office of the state where the policy was issued. You can visit missingmoney.com, a website of the National Association of Unclaimed Property Administrators, to search records from 38 states and Canadian provinces.